Harvest Health & Recreation (CNSX:HARV) Aim on Becoming the Largest Vertically Integrated MSO

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Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.

Despite tough times in the cannabis market, Harvest Health and Recreation (CNSX:HARV) (OTCQX:HRVSF) is on track to become the largest vertically integrated MSO in the United States pending closing of various transactions, with rights to 219 facilities, of which 142 are retail locations and more than 1,580 employees across 17 states. CEO, Steve White, discusses the financial outlook for the company and addresses the ongoing investigation by the DOJ. He shares the company’s involvement with the Last Prisoner project, an initiative aligned with the three issues upon which the company was founded to address: research, charity, and social justice and diversity. Steve shares which states are of highest interest for Harvest Health, as the company navigates the US cannabis space and possibility of imminent federal de-prohibition. 

Transcript

James West: I’m joined now by Harvest Health and Recreation CEO, Steve White. Steve, welcome back.

Steve White: Thank you, sir. Good to be back.

James West: Steve, tough times in the cannabis space for sure. But correct me if I’m mistaken: Harvest Health and Recreation is still on track to become the largest vertically integrated MSO in the United States pending closing of your various transactions. Is that the case?

Steve White: It is, yes. And it’s been tough sledding in cannabis in the stock market, but operationally, a number of the companies like Harvest have continued to do quite well.

James West: Sure. So what does the financial outlook for Harvest Health and Recreation look like these days, that you can talk about?

Steve White: It’s still strong. We are continuing to execute a number of our operational objectives that we’ve laid out over time. There is, you know – there are a number of things that are both helpful and hurtful, as is always true in US cannabis when you have, when you’re rolling things out on a state-by-state basis, though.

James West: Yeah, you bet. So the 9,000 pound elephant in the room that everybody wants me to ask you about is, what is it looking like with the DOJ in terms of these various transactions that they’re sort of examining?

Steve White: So far, so good. Nobody has reported any issues with the DOJ, and the DOJ has stated that they are using this as an opportunity to educate themselves about the space. And so far, it appears as though that’s absolutely consistent with their actions. So there does not appear to be an issue, or does not appear as though there are going to be any transactions that are stopped. 

James West: Wow, fantastic. Okay, so, give me an outlook as best you can – now, I realize that there’s a little bit of uncertainty that you can’t really address head-on because of the DOJ issues, but what does the whole footprint of Harvest Health and Recreation look like, assuming everything in the DOJ becomes a nothing?

Steve White: So we have a very deep footprint in a number of states that we consider key states, and states that are going to drive profitability long-term for Harvest Health and Recreation. Those states would include Arizona, Illinois, Florida, Nevada. There are a handful of others. And that’s really the key to some of this acquisition, or this acquisitive activity, is to try to deepen the footprint in states where we see tremendous opportunity.

James West: You bet. To what extent does your Last Prisoner project help you or hinder you in the recognition of Harvest Health and Recreation as a brand for advocacy?

Steve White: It helps, obviously. I mean, Harvest has deep roots in advocacy, and since its inception; and we’re really old for a cannabis company. We were founded in 2011. We were founded with the idea that we were going to address three issues that weren’t currently being addressed. One was research, one was charity, and the other was social justice and diversity. And that’s really, for us, a foray into the social justice and diversity, and it’s a way that we can get behind some of the things that we’ve been talking about for a number of years.

We have other initiatives like that, but we’re very excited about Last Prisoner Project and the different things that that organization can accomplish.

James West: Sure. A lot of LPs in the space fail to recognize the inherent symbiosis between the concepts of good corporate citizenship, but community compassion that cannabis naturally engenders through use over time. And so you say you’re an older cannabis company; it sounds to me like that’s really turned out to be an advantage for you.

Steve White: It actually has. I mean, when we started the company, we had to think about different ways that we could open facilities and not have people get arrested. And one of the ways that we combat that risk was to really become good neighbours and good members of the community, and that allowed us, then…we saw it with some other cannabis organizations that were threatened by the Federal government. And what we saw is that these communities would come to their rescue when the Federal government would come in and try to enforce unjust cannabis laws.

And so for us, it was actually a way to ensure that we stayed out of jail, more than anything, and then it’s just become part of the ethos of Harvest Health and Recreation. 

James West: Right. Mother is the necessity. So, okay, so tell me: what is the biggest sort of market right now for you guys? I mean, I’ve come to understand that in California, for example, it’s like 80 percent of the jurisdictions actually don’t allow cannabis sales within their borders, and you guys are, your home state is really Arizona, if I’m not mistaken?

Steve White: It is. That’s where we’re headquartered, yeah.

James West: So, I mean, Arizona is not the biggest market, so where is the biggest market? What market excites you the most from a geographic standpoint?

Steve White: So, two different questions there: the biggest market is California, and California is always going to be the biggest market. It’s going to be the single biggest cannabis market in the world for quite some time. So that one does excite us; there are a number of opportunities there that we’re really excited about.

But as I mentioned before, Arizona, although it’s not the largest market, you’re talking about the opportunity for a company to capitalize in a market. And for us in Arizona, that’s one where we can do very, very well.

Illinois, with our pending acquisition of Verano Holdings, Illinois becomes one that is really important for our future as well. You can add to that list Florida, you can add to that list Pennsylvania, you can add to that list Nevada, and there will be, as you see the regulations change over time, and as these programs develop, that list will change. Hopefully we’ll just be adding more to it, rather than subbing some in and some out.

James West: Sure. Do the states where there’s limits on the number of licenses that are permitted in the statewide and the limit on the number that a single entity can possess, is that a benefit or a boon to Harvest and your strategy?

Steve White: It’s both. Look at it from a capital allocation, you know, perspective, and the way that we are making decisions about, when we have money that we want to deploy, what is going to yield the highest return for us. So if you limit the number of suppliers, or the number of retail facilities, when you think about that, you think about some supply constraints. And if you’re projecting significant demand, supply constraints are good for returns for our company.

So those limited-license states become high priorities for us.

James West: Okay, great. The path towards Federal de-prohibition in the States is something that, you know, is that great wild card out there. Have you got any intelligence on that from where you sit, and what the expectation is generally in the US?

Steve White: The expectation in the US generally is, this is a question of when, not if. And there is a how that’s mixed in with that, as well. And so for us, what’s really important is that we can ensure that investors are protected from Federal interference if they invest in companies like Harvest. That, to us, would be huge. The ability to list on US exchanges is a big deal for US cannabis companies.

So it’s not necessarily, you know, de-prohibition, but in the US, the way it’s going to work is, there are going to be different layers of prohibition that get peeled off at different times, and hopefully, you know, the expectation is all of it will be peeled away at some point. The question is just when that happens.

James West: Sure. Do you think it’s pretty much game over for Canada’s funding advantage in the cannabis space once de-prohibition happens in the US?

Steve White: Yes. [laughter] Should I be more definitive than that? You know, it’s a great advantage the Canadian LPs have held over, you know, their US counterparts over time, that they’ve been able to access capital at much lower rates, and there’s many more capital sources that they can look to than we can in the US. When that changes, and we are competing on an equal playing field, you know, very simply put, the California market itself is going to be larger than the Canadian market. So we really like our chances once we get to play with the same rules that the Canadian LPs play with.

James West: Wow. Great. Does the uncertainty or just the mild irritation of the DOJ’s attention at this point, does that sort of give you guys a sort of wait and see sort of stance towards further acquisitions? Are you waiting for that to sort of go away before you sort of resume a momentum that you seem to have generated before that?

Steve White: It certainly puts a chilling effect on M&A activity across the US, because you realize that once you acquire a company, you’re going to have to spend this very lengthy and expensive process to actually get approval before you can close it. But for us, the bigger issue is that we’ve done the bulk of our big acquisition activity, because that was a quick way for us to, you know, gain scale. And so now what we’re looking at is very strategic acquisitions in states where we can go deeper than we currently are, that we think present unique opportunities for Harvest.

So we’re not too worried about that going forward, but it’s actually kind of helpful, because other people can’t conduct large transactions.

James West: Makes sense. All right, Steve, that’s a great update. I really appreciate your time. Thanks for joining me today.

Steve White: Thank you, as always. Appreciate it.

Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.

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